Riyadh: ESG Sukuk Market Expected to Surpass $50 Billion in Two Years
The global sukuk market linked to environmental, social, and governance principles is on track to exceed $50 billion in the next two years as organizations aim to diversify funding sources.
Factors Driving Growth
Fitch Ratings cites new ESG mandates, regulatory frameworks, and government-led sustainability initiatives as key factors fueling the expansion of Shariah-compliant debt products.
Impressive Growth Numbers
According to a report, global ESG sukuk surged by 60.3 percent year-on-year, reaching $40 billion outstanding by the end of the first quarter of 2024.
Positive Outlook
Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, expressed optimism, stating that almost 99 percent of all Fitch-rated ESG sukuk are investment-grade. He emphasized the potential for significant growth in the ESG sukuk market.
Green Sukuk Explained
Green sukuk, also known as ESG sukuk, are Shariah-compliant financial instruments used by issuers to finance investments in renewable energy and other environmental assets.
Challenges Ahead
While the ESG sukuk market shows promise, challenges such as geopolitical tensions, high oil prices, and new Shariah requirements could impact sukuk credit risks.
Continued Growth Expected
Fitch Ratings predicts continued growth in ESG sukuk issuance, with countries in the GCC accounting for a significant portion of the global outstanding sukuk market.
Approaching Milestone
The GCC debt capital market is steadily approaching the $1 trillion mark, with ESG sukuk projected to exceed 7.5 percent of the global outstanding Islamic bonds in the near future.